The city gas distribution (CGD) sector is anticipated to be the primary catalyst for India’s long-term natural gas demand by 2040. While the power, fertiliser and CGD industries currently drive the overall demand for natural gas, CGD is projected to claim the largest share.
A total of 309 geographical areas (GAs) have been authorised across the country, covering approximately 98 per cent of the population and the entire national territory. Further, 323,881 inch km of CGD pipeline has been laid, as of April 2026. City gas sales are on an upward trajectory. They grew to nearly 47 million standard cubic metres per day (mmscmd) in April 2026, up from the earlier 37-38 mmscmd, as companies opened new CNG stations faster than the Minimum Work Programme targets. Companies are also using existing networks more efficiently, to serve more customers. Between April 2025 and March 2026, CGD accounted for 23.9 per cent of India’s total gas consumption.
Forecasts by the Petroleum and Natural Gas Regulatory Board (PNGRB) indicate that CGD is likely to outpace other industrial segments soon. The total city gas use is likely to reach 297-365 mmscmd by 2030 and 495-630 mmscmd by 2040.
PNG progress
The PNGRB has set a target of achieving 126 million domestic PNG (D-PNG) connections by 2034. However, infrastructure deployment so far has seen a sluggish pace. As of April 2026, India’s D-PNG connections stand at 17.11 million, way below the target of 41.76 million (calculated on a pro-rata basis). This represents a mere 41 per cent achievement rate and indicates structural bottlenecks in the roll-out phase. The primary reasons for this deficit are stringent regulatory timelines, difficulty in securing right-of-way permissions from local municipal corporations, and engineering challenges in last-mile connectivity within densely populated urban residential zones.
However, the PNG segment is now witnessing a revival in government interest, driven by the recent geopolitical developments in the Gulf. In the wake of supply chain disruptions caused by the blockage of the Strait of Hormuz, the union government has positioned PNG as a core component of its clean energy transition. In order to reduce reliance on imported liquefied petroleum gas (LPG), which currently serves nearly 330 million households, it has recently introduced supply-side and demand-side interventions. On the supply side, the government has instituted 100 per cent priority allocation of domestic natural gas to the D-PNG sector, diverting resources away from industrial users to ensure household cooking supply. On the demand side, policy directives mandate that urban households with existing pipeline proximity transition from LPG to D-PNG to accelerate demand consolidation.
The CGD network penetration in India is typically dictated by network maturity and proximity to the National Gas Grid. Mature CGD markets, specifically Maharashtra with 4.73 million connections, Gujarat with 3.88 million, Uttar Pradesh with 2.27 million and Delhi with 1.95 million, account for the largest share owing to established operator networks and consumer awareness. In contrast, Karnataka, Haryana, Rajasthan, Madhya Pradesh, Bihar, Andhra Pradesh, and Telangana exhibit moderate adoption, while states such as Jharkhand, Odisha, West Bengal, Kerala, Punjab, Tamil Nadu, Uttarakhand, Assam and Tripura remain at a lower level. This lower penetration in recently authorised GAs reflects networks that are still in the pipeline laying and customer acquisition phases, despite exhibiting long-term demand potential.
To bridge this gap and increase downstream capacity utilisation, the government carried out a targeted intervention through PNG Drive 2.0 between January 1, 2026 and June 30, 2026. This campaign resulted in 1.53 million new registrations, converting into 1.21 million active connections and 1.33 million commercially billed consumers. Furthermore, the campaign expanded the footprint by adding 474 CNG stations, extending CGD supply to 32 new districts and integrating 23 new GAs into the primary natural gas pipeline network.
Recently, the PACE [PNG Acceleration for Clean Energy] Task Force recommended mandating PNG for all new and under-construction buildings, and commercial food establishments having infrastructure; simplifying forest clearances for underground pipeline crossings along road corridors; and a reduction in value added tax (VAT) on PNG. It also highlighted that the transition from LPG to PNG remains fragmented due to manual, siloed processes across CGD, OMCs, LPG distributors, and local authorities, leading to dual connections and delayed LPG discontinuation. It suggested that to cater to areas lacking pipeline infrastructure, CGD companies should deliver mini LNG cryogenic cylinders on light commercial vehicles without waiting for full pipeline build-out.
Retail CNG expansion
While domestic PNG growth is tardy due to deployment lags, retail CNG is expanding. The MWP mandates authorised entities to establish 18,336 CNG stations by 2034. As of April 2026, there were 8,948 operational CNG stations, exceeding the pro-rata target of 6,889 stations. The government is following the Petroleum and Explosives Safety Organisation (PESO) mandate, which requires a 10-day processing deadline for new station clearances and a temporary six-month approval exemption for CNG compressors, and fast-tracking the process.
Additionally, it is expanding dedicated refuelling networks through the National Green Corridor initiative.
As of April 2026, mature markets dominated the retail CNG segment, with Uttar Pradesh leading with 1,373 CNG stations, followed by Maharashtra with 1,316 stations and Gujarat with 1,105 stations. Other states such as Haryana, Karnataka, Tamil Nadu, Rajasthan and Delhi are also catching up. In contrast, eastern, north-eastern and some smaller states have few stations due to nascent gas networks with poor connection to major pipelines. However, once the Northeast Gas Grid is completed, these underserved regions are expected to see new network growth.
Keeping this expansion profitable is a key challenge. One of the biggest hurdles is reduced allocation of government-regulated administered price mechanism gas from legacy ONGC and OIL fields. This forces gas companies to buy expensive market-determined gas and imported LNG, which hurts station profits and raises retail CNG prices for consumers.
However, greenfield expansion in newly authorised Tier 2 and 3 cities offers lower capital entry barriers and insulates the business from rapid urban EV displacement. On the demand side, converting buses, taxis and trucks to CNG guarantees steady demand.
CBG blending and grid integration
To offset high import costs and supply cuts in the natural gas sector, the government is working to integrate compressed biogas (CBG) into the existing gas grid through a mandatory phased blending programme for CNG and PNG. The mandate started with 1 per cent in FY 2025-26, gradually increasing to 3 per cent in FY 2026-27, 4 per cent in FY 2027-28 and 5 per cent from FY 2028-29 onwards. This phased approach creates an immediate, guaranteed market for green gas while steadily reducing import dependence.
Producers can meet these targets via different ways. Under the Sustainable Alternative Towards Affordable Transportation (SATAT) initiative, private producers can enter into long-term purchase agreements with oil and gas companies to sell CBG via mobile cascades to retail outlets. For direct grid integration, the CBG-CGD synchronisation scheme relies on tripartite agreements between GAIL, CBG producers and local gas distributors, enabling both retail sales and direct pipeline injection. A third, standalone route allows producers to bypass these arrangements altogether, running captive power plants, selling to utilities or supplying gas directly to industrial buyers.
Despite this policy push, the progress has been slow. Realising CBG’s full potential hinges on resolving two structural bottlenecks on the ground. The first is feedstock aggregation, ensuring reliable, year-round supply of agricultural residue from highly fragmented smallholders, often leaving plants underutilised. Addressing this would require a shift away from erratic, loose biomass sourcing towards organised, cooperative-led logistics networks capable of stabilising supply chains. The second is the mismatch between production and demand locations, which has historically driven up transport costs and left plants with unsold inventory. The easiest solution is linking plants directly to urban gas networks. In line with this, the Ministry of Petroleum and Natural Gas is implementing the Development of Pipeline Infrastructure scheme to facilitate CBG offtake, with a total financial outlay of Rs 9.9 billion for the period FY 2024-25 to 2028-29.
Pipeline expansion
Achieving full connectivity to the National Gas Grid remains the absolute foundation for making these networks financially viable. GAIL’s natural gas pipeline projects, including – the Srikakulam-Angul, Gurdaspur-Jammu, and Kochi-Koottanad-Bengaluru-Mangalore corridors, – are at advanced stages of completion. Additionally, the Mumbai-Nagpur-Jharsuguda pipeline project is almost complete, and the remaining sections of the Jagdishpur-Haldia-Bokaro-Dhamra pipeline project heading towards Haldia are on track to be completed by September 2026. The multi-state Northeast Gas Grid is expanding its reach. These pipeline connections will likely replace expensive road transport with direct gas supplies, making it cheaper and easier to power local homes and businesses.
The way forward
While companies continue to invest in pipelines, a key priority is to enhance profits from existing networks by increasing customer penetration, gas usage and overall capacity. Future competitiveness will no longer rely solely on pipes on the ground, but on providing a better customer experience through faster PNG connections, shorter CNG wait times, smart digital billing, and highly reliable service. This focus is especially critical in newer GAs, where main pipelines are already built but household adoption remains low. To build consumer confidence and encourage drivers to switch to CNG, operators are calling for wider station coverage, such as adding more CNG dispensers. Maintaining an economic edge through competitive pricing and reliable service is crucial as the sector faces rising competition from EVs and LPG. Consequently, CGD companies are shifting from traditional gas utilities to integrated clean energy providers by incorporating LNG, biofuels, and ethanol into their portfolios. A feasibility study by Engineers India Limited and IIT Kanpur confirms that blending 3 to 5 per cent green hydrogen directly into existing PNG pipelines is entirely safe for current infrastructure. While hydrogen blending remains in its nascent stages, the projected growth of India’s hydrogen production ensures that both CBG and hydrogen blending are likely to offer backup solutions whenever standard gas supplies run short.
Jayati Arora
